April 6, 2023

Organizations in today’s tight labor market face new demands from employees. One of them is pay transparency.

The Basics

Pay transparency is the practice of sharing employee compensation with the entire organization. The goal – create a culture of openness and trust that empowers employees.

This topic seems simple but is quite complicated. There are risks and benefits to consider before deciding if it is the right move for your company. The first — is it required by law?

Some states and cities have mandated pay transparency. This graphic from our friends at Zywave breaks it down.

Find yourself in the gray? Then the question remains — should you adopt a transparent pay policy?

Many companies keep salary information confidential. They want to avoid conflicts and control the compensation process. Recent research from Cornell University suggests that pay transparency can have positive impacts on an organization.

 

Fair Workplaces

Pay transparency can help to promote fairness and equity within an organization.

Hidden salaries can keep employees from judging whether their pay is fair. This can lead to feelings of resentment and mistrust among staff members.

Cornell’s research showed that a transparent pay policy raised the wages of low-level employees. It had less impact on those who were already at the top of the range. It also resulted in an increased rate of promotion and hiring of female employees.

Talent Retention

Today’s job market is competitive. Winning the battle for talent a top challenge for organizations today

Job seekers are looking for companies that are open about their compensation practices. Organizations can use transparency to prove they value their employees. And to show they want to create a positive work environment.

One serious disclaimer: Companies that underpay their employees might find transparency to have the opposite effect. It could drive away recruits and demotivate current employees.

Pump the Brakes

Pay transparency has potential benefits. But it is important to consider drawbacks as well. One impact an organization must think about is employee effort and satisfaction.

In 2022 research, pay transparency policies had complicated effects. Employees that knew their peers salaries put in more effort and performed better. But some employees were less satisfied with their role.

Employee personality played a part. Employees with less confidence had improved satisfaction. The most confident employees were less satisfied — driven by a need to “stay ahead” of their peers.

Should you consider pay transparency?

There is no one-size-fits-all answer. Transparency is powerful. It creates culture of openness and trust. It allows access to the data needed to make critical decisions.

Pay transparency can have positive impacts on an organization. It can also create challenges. If your company wants to improve performance, improve equity and attract talent — pay transparency is worth considering.

Here is one final tip if you are unsure. Partner with a trusted advisor. They can take a holistic look at your benefits and align them with your organizational objectives.